Glacier Bondholders Face 36% Cut as Iceland Shows Auction Terms

  • Terms show Iceland willing to pay ISK190 per euro in auction
  • Says offshore krona auction set to take place on June 16

Iceland revealed the terms under which investors in about $2.4 billion in krona debt sold before the 2008 crisis will be able to exit their holdings as the island unwinds capital controls.

The central bank said late on Wednesday it is planning to hold an auction on June 16 at which it will offer to buy back Glacier bonds -- debt sold in kronur outside Iceland before its financial collapse eight years ago -- at a discount of 36 percent to 50 percent to the current onshore krona exchange rate. Investors will have four hours starting at 10 a.m. local time to decide whether to accept those terms on the day, the bank said.

The auction marks the final step authorities in Iceland need to take to protect the krona from a sudden selloff when they remove currency restrictions. The island has already settled with creditors affected by the $85 billion default of its three biggest banks.

If more than than 175 billion kronur ($1.4 billion) is offered in the auction, then a rate of 190 kronur per euro will be paid. If only 50 billion kronur is tendered then the bank will buy kronur at 210 per euro.  The auction is structured with a single-price format and all accepted offers will be made to investors at the same price.

The krona traded at 139.59 per euro late on Wednesday, though the offshore rate is lower.

The government has said it will unwind restrictions for consumers and corporations before the end of the year.